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Investment banks unprepared for EU financial regulation

European regulation, SFTRInvestment banks are “overconfident” they will meet the requirements of the EU’s Securities Financing Transactions Regulation (SFTR), which comes into force next April, while the majority remain unprepared for the new rules.

Nearly 100% of tier one, tier two, and tier three investment banks will be relying on systems and processes used for previous regulations such as the European Market Infrastructure Regulation, research by consultancy firm Luxoft claims.

Over 70% of investment banks recognise that SFTR compliance will require a “much more complex IT structure than EMIR or MiFID” – the Markets in Financial Instruments Directive. Almost three quarters believe that SFTR implementation will be more expensive than either EMIR or MiFID.

Despite these pending issues, 48% of investment banks have conducted a “cost benefit analysis” of the regulations, while only 46% have set up a planning committee.

“SFTR is the most demanding piece of transaction reporting regulation the sector has seen, and firms seem overconfident on delivering on the requirements when there is a vast amount of work to be done, with very little time to spare,” said Geoff Hutton, Luxoft’s Europe, Middle East and Africa regulatory specialist.

“Compliance burdens have soared over the last decade and SFTR will add significant pressure to firms which, coupled with Brexit constraints, could leave many vulnerable to costly regulatory risks,” he said, calling on investment banks to start establishing SFT activities.

The study was carried out by Censuswide on behalf of Luxoft, with 331 senior compliance professionals responsible for implementing SFTR at their respective investment banks.

Securities financing transactions allow “investors and firms to use assets, such as the shares or bonds they own, to secure funding for their activities”, according to the European Commission.

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